A one-size fits all approach is ineffective because it overlooks the different business models that exist and the varying focuses of those businesses. I am not just talking about an airline being different to a hotel or a travel agent, but even between airlines or between travel agents. To take a couple of obvious examples, an LCC (low-cost carrier) cannot be treated the same as a network carrier. Likewise, an OTA (online travel agency) should not be treated the same as a bricks and mortar leisure agent. The types of services provided differ, the markets that they sell and operate in vary, etc. Seasonality will also look different from merchant to merchant. It’s important to understand the business of the travel merchant and to have visibility on how that business is evolving over time.
We see a lot of frustration on the side of the merchant when they are unable to properly articulate or present their risk profile to their existing or potential financial providers. A lot of this frustration typically stems from a misunderstanding of the travel merchant’s business on the part of the financial provider. Similarly, the travel merchant may lack visibility or understanding of how the financial provider is assessing the data that they provide on a regular basis.
When a travel merchant is able to clearly articulate and present their risk profile to their financial providers, this results in more constructive conversations between the two parties. Conversations that are focused on growth, creating stronger businesses, and longer-term partnerships. At the crux of this are payment terms and conditions that make sense for the business.
Transparency and/or visibility between risk and sales teams is key to ensuring growth for both the payment provider and their customers while effectively managing risk. When risk and sales teams are not speaking from the same page, it can lead to customer friction and eventually attrition due to over collateralisation and overly onerous payment terms. The reverse impact is that in the push to grow and welcome in more business without the right understanding of the businesses being onboarded and the right risk management mechanisms in place, a payment provider can find themselves greatly under collateralised and unnecessarily exposed to risk.
Some merchants fear that the additional visibility towards a payment provider may put them at a disadvantage, but this couldn’t be further from the truth. On the contrary, over time, a single source of truth creates stronger partnerships and allows the two parties to work better and grow together.
Trust and transparency enable informed decisions about risk exposure. As a result, payment providers are less likely to overestimate risk exposure, resulting in lower collaterals and/or faster or more frequent payouts.
Pre-emptive risk management means collaterals such as bank guarantees, rolling reserves, or even insurance premiums are optimised on an ongoing basis.
Given the cross-border, global nature of travel, things like market mix can have a significant impact on travel merchant businesses. These businesses are more susceptible to changes in the market, such as the impact of geo-political events or fluctuations in foreign exchange (FX). Take, for instance, the case off a primarily European carrier or travel agent that decides to expand into the US, Middle East, Africa, or Asia. In other cases that our industry has seen, some companies have decided to wind back from flying transatlantic to only flying within a smaller defined region. In such instances, knowledge of a local market is also a key consideration: does the travel merchant understand the consumer behaviours and preferences in that market? Who are the local competitors?
The businesses of travel intermediaries also evolve. To provide a more obvious example, segment mix changes, for example, in the case of a flight or hotel only travel intermediary that decides to expand its offering to sell both types of travel services. Clearly, the different payment conditions for these two types of travel suppliers can have significant impact on how an acquirer may want to work with a travel intermediary.
Again, ongoing transparency between the two parties enable proactive and constructive conversations and helps avoid any potential overreactions to changes in the travel merchant’s business. Instead of stifling potential business growth, parties can then work together to embrace such growth.
There are many areas that can be addressed in this question, but I will focus on a few important factors. Firstly, data remains a key area where travel businesses can develop a competitive advantage in the travel industry as it has historically been difficult for them to effectively consolidate their booking and payments data. Leveraged correctly, travel businesses can become proactive rather than reactive in managing their risk and, in turn, take an active approach in their relationships with financial providers. These strengthened relationships often result in optimised cashflows that mean both businesses can grow.
Secondly, businesses should find partners that enable them to look beyond only their own risk. I think this applies to both travel businesses and payment providers. This doesn’t necessarily need to be benchmarking. Working with partners that have a comprehensive understanding of the industry you work in and proven experience working with other businesses that do what you do is essential. Their insights and support, both in terms of knowledge and technology, are invaluable.
Thirdly, a sustainable B2B payment strategy is critical. I am not only talking about travel intermediaries here but also travel suppliers. There should be synergies in terms of efficiencies and risk mitigation between the payin (how a travel business is paid) and the payout (how they pay others). On this same topic, understanding who your suppliers are including their risk profile is also key to ensuring the right B2B payment strategy is in place.
The Paypers’ Travel Series includes contributions on topics spanning emerging trends in travel payments, fraud and security challenges, regulatory and tax impacts, risk management and forex, as well as sustainability in the travel industry. For a complete overview of all the contributions featured, click here.
Livia Vité serves as the CEO of actuary.aero. With an extensive background in the travel industry, Livia has previously worked for an international trade association for airlines, as well as for fraud prevention, risk management, financial technology, and payment solutions companies. Her knowledge spans several domains, including travel distribution, payments, fraud detection, risk management, and law.
Her expertise reflects a deep understanding of the complexities of the travel industry, enabling her to craft innovative solutions geared towards optimising the travel value chain. Notably, Livia has played a pivotal role in assisting airlines and travel agents in overcoming B2B distribution and payment challenges.
actuary.aero is a pioneer in providing transaction level payment data intelligence for airlines, travel agents, and other deferred delivery merchants. As an independent and trusted third party provider, they offer mutual visibility of shared payment data and risk exposure via a secure communication platform between deferred delivery merchants, acquirers, schemes, and other financial providers. Their AI-powered dashboards transform existing payment data into actionable insights, enabling merchants and financial providers’ treasury, risk, and customer teams to make decisions on credit risk management, sales, and treasury that grow their business.
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